Related papers: Dynamic Asset Pricing Theory for Life Contingent R…
We develop a theory which applies to any market dynamics that satisfy a fair market assumption on the nullity of the average profit of simple market making strategies. We show that for any such fair market, there exists a martingale fair…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction…
In the article a strenthened version of the 'Fundamental Theorem of asset Pricing' for one-period market model is proven. The principal role in this result play total and nonanihilating cones.
We consider an investor, whose portfolio consists of a single risky asset and a risk free asset, who wants to maximize his expected utility of the portfolio subject to managing the Value at Risk (VaR) assuming a heavy tailed distribution of…
We explain the main concepts of Prospect Theory and Cumulative Prospect Theory within the framework of rational dynamic asset pricing theory. We derive option pricing formulas when asset returns are altered with a generalized Prospect…
The continuous time model of dynamic asset trading is the central model of modern finance. Because trading cannot in fact take place at every moment of time, it would seem desirable to show that the continuous time model can be viewed as…
We establish a quantitative version of the classical Halmos-Savage Theorem for convex, potentially non-dominated sets of probability measures and its dual counterpart, generalizing previous quantitative versions. These results are then used…
We study continuous-time portfolio choice with nonlinear payoffs under smooth ambiguity and Bayesian learning. We develop a general framework for dynamic, non-concave asset allocation that accommodates nonlinear payoffs, broad utility…
In multi-state life insurance, an adequate balance between analytic tractability, computational efficiency, and statistical flexibility is of great importance. This might explain the popularity of Markov chain modelling, where matrix…
We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and…
We consider dynamic pricing with covariates under a generalized linear demand model: a seller can dynamically adjust the price of a product over a horizon of $T$ time periods, and at each time period $t$, the demand of the product is…
This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality.…
High frequency data in finance have led to a deeper understanding on probability distributions of market prices. Several facts seem to be well stablished by empirical evidence. Specifically, probability distributions have the following…
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
The law of one price (LOP) broadly asserts that identical financial flows should command the same price. We show that, when properly formulated, LOP is the minimal condition for a well-defined mean-variance portfolio selection framework…
We establish dual attainment for the multimarginal, multi-asset martingale optimal transport (MOT) problem, a fundamental question in the mathematical theory of model-independent pricing and hedging in quantitative finance. Our main result…
We study the optimal investment problem for a continuous time incomplete market model such that the risk-free rate, the appreciation rates and the volatility of the stocks are all random; they are assumed to be independent from the driving…
A continuous-path semimartingale market model with wealth processes discounted by a riskless asset is considered. The numeraire portfolio is the unique strictly positive wealth process that, when used as a benchmark to denominate all other…